DOL Proposes Automatic Portability Transaction Regulations

On January 18, 2024, the DOL released proposed regulations on automatic portability transactions for retirement plans when employees change jobs. This proposed change could make it easier for employees to keep track of existing retirement plan accounts with a benefit valued at $7,000 or less upon job termination. Currently, the rules allow those account balances to automatically roll over into a Safe Harbor IRA if the employee does not take certain actions upon job termination. The proposed rule would allow the employee to transfer the money from the Safe Harbor IRA into the requirement plan sponsored by their new employer and avoid fees or taxes associated with plan cash-outs or transfers.

The proposed rule would allow an automatic portability provider to receive a fee in connection with the transfer if certain conditions are met. The hope is that this would then lead to employees being able to more seamlessly rollover retirement accounts instead of needing to cash out accounts. The proposed regulations outline specific requirements that must be satisfied by the automatic portability provider including, but not limited to, required disclosures, permitted investments, record retention requirements, and annual audit and correction procedures.

While this proposed change is generally viewed as positive, retirement plan fiduciaries should be aware of this proposed ruling and the impact it may have on the plan. Those wishing to submit comments to the DOL must do so by March 18, 2024.

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